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Keyport Life

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Rationale for DCR, Duff & Phelps Credit Rating, and reaffirmation includes Keyport's broad annuity product line, diverse distribution and strong bank distribution channel, and good asset-liability management.  DCR's rating also reflects Keyport's declining equity index annuity premiums, the company's increasing reliance on variable annuities for sales growth in a very competitive market, and the current difficult environment for fixed annuity products. 
Keyport is an annuity writer that had 17.1 billion dollars of GAAP basis assets and 1.1 billion dollars of shareholders' equity at June 30, 1999.  Historically, the company's primary products were fixed annuities, but in 1995 it began diversifying its product line by introducing one of the industry's first equity-indexed annuities.  Since then Keyport has continued to diversify its product line by emphasizing variable annuities.
DCR believes this diversification was prudent given the generally declining interest rate and rising equity market environment present in the last several years and the corresponding shift in consumer demand from fixed toward variable products. DCR also believes that Keyport's current product line is well-equipped for different interest rate and equity market environments, and thus provides a more diverse source of revenues.
Keyport distributes its products through a variety of channels including banks, broker dealers, independent agents, and financial planners.  DCR believes these diverse distribution sources, especially Keyport's marketing relationships with several key banks, give the company a competitive advantage over companies that rely on less diversified distribution.  In addition, Keyport has grown its institutional spread based business over the last two years by selling 800 million dollars of non potable five year funding agreements to institutional investors. 

DCR believes that one of Keyport's key challenges is managing the persistency of its fixed annuity block. The company has designed programs that provide incentives for fixed annuity holders to retain their fixed annuities or in the case of a surrender, to purchase a Keyport variable or equity-indexed annuity. DCR believes these programs are well managed and are appropriate responses to the current market environment. Other key challenges include maintaining profitability given the company's shift toward lower margin variable annuities and replacing revenue lost from declining equity index sales, either by rejuvenating equity index annuity sales or growing variable annuity sales. 

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